The SEC gives free pass to insider trading at the big banks

By Cody Willard

Why won’t the government prosecute bank fraud? Robosigning, breaking and entering, and the packaging of securities that were designed to fail and which were literally being bet against by the firm itself and the firm’s partners, or even the fact the the CEOs of these TBTF banks like Goldman Sachs, General Electric, Bank of America and so on were saying their balance sheets were healthy and they had little risk exposure just weeks before begging for bailouts to fix those balance sheets…none of that has been prosecuted.

We have yet to see even one arrest of at any major bank, despite endless examples of crime heading into and out of the so-called financial crisis.

And that makes me sad, scared and worried about the rule of law in this country. Heck, from the first hint of the bailouts, I’ve been warning that the end game is anarchy, and with the faltering of clear land ownership rights now happening across this country as these hybrid-government-sponsored-private-banks can’t trace ownership of some percentage of the properties they’ve packaged/loaned/borrowed/sold, we’ve indeed come to see a worrisome lack of order in our most fundamental right of simple ownership.

Meanwhile, the SEC and the other regulators who could and should be enforcing the many, many existing laws that have been broken by these banks, are pretending that they’re actually trying to get justice by going after these small-time corporate and hedge fund insider trader schemes, that entailed an insider from the company telling a trader information that enables that trader to get in front of the general public ahead of time and profit the proceeding market action. And don’t get me wrong, we do want those laws prosecuted too, because selective prosecution of such laws in this country would lead us to anarchy. But the fact is that these latest insider trading prosecutions from the SEC are standard and shouldn’t be applauded as some big new initiative — it’s just the SEC doing the bare minimum of its job of enforcing the law.

If you’re still following along here, you’re probably as outraged as I am about all of this. I’m about to make you even more outraged. Here’s a quote from a recently, widely circulated Bloomberg article about how the banks have made more money in the last two years since the bailouts than they’ve ever made in any other two year span in their history, helping to explain how these TBTF, welfare banks that are still getting “emergency” help of 0% loans and $600BB of fresh quantitive easing, are making that kind of money:

“The Fed is a much greater influence in the fixed-income markets than it has been in the past,” Ellman said. “They are moving very large dollar amounts around, and they are indicating in advance what they are going to be doing.”

Let me break that down for you — the banks and other big traders are making huge money by front running the Federal Reserve’s trades for the American Public. They’re insider trading and not just against company information, but against the public’s governmental coffers itself.

But instead of seeing any hint of prosecution, we see bankers and analysts bragging about that fleecing of the American taxpayer in the form of insider trading and front running him.

Last night as he showed my parents and I their multi-generational studio at the the Wyeth-Hurd Gallery and Guest Ranch down the street from our ranch, Michael Hurd asked me what the outlook for America and our economy is. I told him that we have a choice over the next ten years — either we stop this ongoing Republican/Democrat Regime-led movement to anarchy/corporatism/communism in this country and get back to universal, fair-application of the rule of law and we enter a new period of prosperity leveraging the wonders of communication and enterprise of the 21st century…

…or we let these anarchists continue their march of destruction. And then we’ll truly be just another banana republic like so many of us are warning could happen and which so many others seem to blithely dismiss.

I’ve outlined a couple of different trading strategies around the belief that rule of law will win the day in my Marketwatch Revolution Investing newsletter that you can check out at http://marketwatch.com/cody as well as in report, “14 Stocks That Should Double in 2011 and 6 That Should Collapse” that you can check out at http://Tradesfor2011.com. But the short answer is I’d work to be net short the financials over the next couple years. Oh, and stick with the companies enabling the communication and enteprise revolution of the 21st century like Google, Apple, Cisco, Celestica and others.

We want and need justice. Help me demand it and we’ll eventually get it.

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About The Cody Word

Cody Willard writes the Revolution Investing investment newsletter for MarketWatch and posts the trades from his personal account at TradingWithCody.com He is the founder of WallStreetAll-Stars.com and the principal of CL Willard Capital. Cody serves as an adjunct professor at Seton Hall University and is on the University of New Mexico Alumni Board. He was an anchor on the Fox Business Network, where he was the co-host of the long-time #1-rated show on the network, Fox Business Happy Hour. Cody, a former hedge fund manager, and his stock picks and economic outlooks have been featured on NBC’s The Tonight Show with Jay Leno, ABC’s 20/20, CBS Evening News, CNBC’s SquawkBox, Jon Stewart’s The Daily Show, as well as in the Financial Times, Wall Street Journal, New York Times, and many other outlets.